Climate tech’s newest unicorn makes chemicals from sugar, not fossil fuels

January 19, 2022
Climate Change
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At a new industrial plant making chemicals in Houston, what you might notice first is what isn’t there. “You’ll notice that there’s no wastewater discharge, or air emissions, and that the entire plant is run off electricity rather than giant coal-fired burners,” says Sean Hunt, chief technology officer of Solugen, the startup that built the plant.

The traditional petrochemical industry is one of the world’s biggest sources of greenhouse gas emissions, spewing out an estimated 923 million tons of CO2 last year. But Solugen’s products can actually be carbon negative—and they are also less expensive to make than their counterparts made from fossil fuels. If the startup can reach the milestones it has set for itself over the next few years, it could potentially begin to remove a billion tons of CO2 per year.
The company, which recently raised $357 million in a Series C funding round and is now valued at $1.8 billion, launched in 2016 after a chance conversation at a poker game in Dallas. Hunt, a scientist who studied metal catalysts that are used to make chemicals, met cofounder Gaurab Chakrabarti, who had discovered an enzyme that could turn sugar into hydrogen peroxide while studying cancer cells as a medical student. They became interested in combining the approaches to make chemicals in a new way.
Right now, the $6 trillion chemicals industry relies on oil, natural gas, and coal to make ingredients used in everything from laundry detergent and running shoes to fertilizer. It’s a dirty process. The pollution starts with fossil fuel production, and the complex processes used to refine those fossil fuels into chemicals lead to climate emissions, air pollutants like benzene, and a lot of waste, because the techniques are inefficient. It’s also unsafe. The site where Solugen now works used to be a petrochemical plant until it violently exploded, shattering windows at nearby businesses and sparking a fire that took seven hours to put out.

It’s possible to use fermentation to make the same chemicals from plants instead of fossil fuels, but fermentation is also inefficient—if you use living cells to turn sugar into a chemical, half of the sugar will be converted into CO2. Solugen’s approach is designed to eliminate that waste. At the plant, which runs on wind power, corn syrup goes in a reactor filled with engineered enzymes, making an intermediate product that goes in another tank with metal catalysts, which speed up the whole reaction and make it more efficient. Virtually all of the feedstock is ultimately converted into the final product.

The company started first with a niche market. After winning a $10,000 grant from an MIT competition in 2016, Chakrabarti and Hunt went to Home Depot, bought supplies to build a tiny reactor from PVC pipes, and started making hydrogen peroxide. A business owner who’d heard the MIT pitch reached out, saying that they wanted to buy the product to sanitize water in float spas because they wanted to find a more sustainable product. Others in the float spa industry followed.

“I flew down to see the lab and they had this kind of janky prototype reactor—it was maybe two feet tall, on a lab bench, but it was making product through their enzymatic reaction,” says Seth Bannon, founding partner at Fifty Years, an early-stage VC fund that was the company’s first investor. “And the thing that was most impressive was that they were selling 100% of the product.” The startup soon started selling its product to other industries, including wastewater treatment plants.

Focusing on specialty products first was a deliberate strategy to avoid the path that taken by early biotech companies that tried to compete with companies making cheaper products on a massive scale. “I think a lot of the mistakes that have happened in the past were people went directly to commodity chemicals and fuels to compete against these $100 billion companies,” says Hunt. “We started with water treatment chemistries, right from day one. And then what we’ve been doing is we’ve been progressively moving into different chemistries in different industries as we scale.”

Another molecule the company now makes can be used to make concrete harder and reduce the use of cement; because the plant-based chemical is permanently embedded in the concrete, it makes the chemical carbon negative. While there could be challenges with using corn syrup at a massive scale, since the farmland used to grow the corn could potentially be used for growing food, Solugen could also use captured CO2 as a feedstock in the future as an alternative to corn or other plants.Based on a detailed analysis of current products, the company estimates that it could theoretically produce 90% of the chemicals that are now produced by fossil fuels. (The other 10% include chemicals that the company doesn’t want to produce because of the environmental impacts of the chemical itself.) Making alternatives for everything will take time—the company has to design enzymes for each chemical, and that’s a challenging process that isn’t necessarily guaranteed to work.

The products are also less expensive to make than traditionally-produced chemicals in part because the company’s process is far safer. Using corn syrup instead of petroleum helps; the enzymes also work without the use of other fossil fuels that are normally used in processing, and the chemistry happens at room temperature rather than in ultra-hot equipment that risks catching fire. Traditional processes “are so intrinsically unsafe, that you cannot build those plants in the United States anymore,” says Chakrabarti. “You have to go to foreign countries who have much lower safety standards.” Building a plant costs around three times as much as it did in the 1970s, even adjusting for inflation, because of current safety standards, says Hunt.

The process can also happen in plants that are much smaller than the traditional version, and less capital-intensive to build. The company plans to build a distributed network of plants that can help reduce the emissions from transportation. It’s possible to reuse old industrial facilities, like the first plant in Houston. “If you look at the old steel towns, old manufacturing towns of pulp and paper mills, they all have the same infrastructure in place where we can go and revitalize effectively these communities that have been economically depressed for many years because of the loss of manufacturing jobs,” he says.Early customers have been quick to adopt the new products, in part because the startup doesn’t need to sell at the huge volumes of traditional manufacturers and can give better customer service. (A typical manufacturer, for example, might tell a customer only that their order will show up sometime in the next month; Solugen can offer detailed tracking.) And a growing number of companies are looking for chemicals that can help lower their own carbon footprints. Still, the shift won’t happen immediately. “The reality is, these are slow-moving industries,” Chakrabarti says. “We’re starting to figure out how to kind of clinically hack our way into having faster adoption of our products. But the reality is, these supply chains have been around for years for some customers, and for them to switch, it’s going to take a very high degree of proof. And that takes time.”

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